Transcript Document 7182353

FY2009 BUDGET OVERVIEW
Prepared for Governor M. Jodi Rell
by the Office of Policy and Management
September 24, 2008
1
INTRODUCTION

The FY 2009 budget that was adopted during the June 2007 Special
Session was based on revenue projections that exceeded
expenditures by less than $100,000

Since January 2008 the State has experienced a significant decline in
revenue in both the General Fund and Special Transportation Fund

Calculation of the projected net $302.4 million General Fund FY 2009
deficit:
 $370.9 million in revenue deterioration
 $10.0 million in additional expenditures with the passage of PA 0851, Criminal Justice Reform Bill
 $18.3 million deficiency in the Department of Correction
 $ 1.5 million deficiency in DAS/Workers’ Compensation
 Offset by $137.6 million in rescissions
2
STATES FACING BUDGET
SHORTFALLS IN FY 2009
Neighboring States with a FY 2009 Budget Gap
Connecticut
Maine
Massachusetts
New Hampshire
New Jersey
New York
Rhode Island
Vermont
Amount
$302.4 million
$124.0 million
$1.2 billion
$200 million
$2.5 billion
$5.5 billion
$430 million
$83 million
Percent of
FY2009
General Fund
1.76%
4.10%
4.30%
6.40%
7.70%
9.80%
13.10%
6.80%
Source: Center on Budget and Policy Priorities, September 8, 2008



29 States have identified
budget shortfalls in FY
2009 of at least $48 billion
All 6 New England states as
well as New York and New
Jersey have identified a FY
2009 budget gap
California has the largest
projected gap at $22.2
billion or 22% of its FY 2009
General Fund
3
FY2009 PROBLEMS
4
NEGATIVE REVENUE TRENDS SEEN
State of Connecticut
Recent Revenue Performance
FY 2008 Growth For Selected Periods vs. Comparable FY 2007 Periods
FY '08
Full
12 months
FY '08
Last
6 months
General Fund
Personal Income Tax-Total
Withholding
Estimates & Finals
Sales & Use Tax
Corporation Tax
Insurance Companies
Cigarettes
Real Estate Conveyance
Oil Companies
Alcoholic Beverages Tax
Indian Gaming Payments
8.9%
4.5%
17.9%
2.1%
-4.0%
-10.2%
-6.1%
-20.7%
17.4%
2.0%
-4.4%
8.1%
1.4%
17.3%
2.1%
-6.0%
-21.7%
-9.3%
-41.8%
18.3%
-3.6%
-4.7%
Special Transportation Fund
Motor Fuels Tax
Sales Tax- DMV
-3.7%
-4.5%
-5.7%
-7.9%
FY '08
Last
3 months
3.0%
0.6%
9.5%
0.6%
-2.4%
-24.4%
-11.1%
-41.9%
14.9%
-5.0%
-4.3%
*
*
*
*
*
*
-7.2% *
-10.8%
* Adjusted for one-time revenue and tax changes
* Adjusted for one-time revenue and tax changes
5
REVENUE PROJECTIONS LOWERED
FY 2009 General Fund Revenue*
(In Millions)
Personal Income Tax
Sales & Use Tax
Corporation
Insurance Companies
Cigarettes
Real Estate Conveyance
Oil Companies
Indian Gaming Payments
Investment Income
Federal Grants
All Other


2009
Budget
$ 7,676.4
3,747.7
791.5
263.0
348.1
204.0
144.3
449.0
85.0
2,768.1
596.0
$ 17,073.1
9/22 OPM
Estimate
$ 7,545.0
3,656.2
712.6
217.2
325.0
133.2
233.0
391.4
50.0
2,844.8
593.8
$ 16,702.2
Diff.
$ (131.4)
(91.5)
(78.9)
(45.8)
(23.1)
(70.8)
88.7
(57.6)
(35.0)
76.7
(2.2)
$ (370.9)
%
Decline
-1.7%
-2.4%
-10.0%
-17.4%
-6.6%
-34.7%
61.5%
-12.8%
-41.2%
2.8%
-0.4%
-2.2%
Most revenue items are projected to bring in less than the originally adopted revenue forecast
The only other significantly positive revenue trend is the oil companies tax and while it brings in additional
revenue, higher oil prices also mean higher state energy costs and higher demand for energy assistance
programs offered by the Dept. of Social Services
* Does not include FY 2008 Transfer to fund Energy Assistance Programs
6
INCOME TAX GROWTH IS SLOWING
Personal Income Tax Growth Rates
28%
21.9%
21%
22.8%
19.4%
19.0%
14.9%
Economic Growth Rate
14%
9.5%
17.9%
13.0%
8.7%
6.0%
7%
7.8%
7.1%
7.8%
4.5%
3.9%
0%
-1.5%
-1.1%
-1.8%
-7%
Withholding Tax
-14%
Estimates & Final
-14.7%
-21%
-23.5%
-28%
'00
'01
'02
'03
'04
'05
Fiscal Year

'06
'07
'08
'09
Est.
The above growth rates do not reflect the impact of recent events in the financial markets
7
CT PERSONAL INCOME TAX IS HEAVILY
RELIANT ON FAIRFIELD COUNTY WEALTH
Per Capita Personal Income in 2006
$80,000
$60,000

$74,281
$50,762
45% of Personal
Income Tax
collections comes
from Fairfield
County
$42,681
$36,714
$40,000
$20,000
$Connecticut
Fairfield
County
Source: Moody’s Economy.com
Excluding
Fairfield
County
US

Per Capita
Income in
Fairfield County
is 46.3% higher
than Connecticut
as a whole
8
STOCK MARKET DECLINES
Relative Change in Stock Market (S&P 500) from Recent Peak as of 9/19/08
0%
S&P 2000
% Off From Maximum
S&P 2007
-10%
-20%
-30%
0
1
2
3
4
5
6
7
8
9
10
11
12
Months

The stock market has fallen by nearly the same percentage as in 2000

S&P Peak Dates: March 24, 2000 and October 9, 2007
9
SALES TAX GROWTH IS SLOWING
Sales & Use Tax Growth Rates
Economic Growth Rate
8%
7.1%
6%
5.6%
4.9%
3.9%
4%
2.8%
2%
3.0%
2.3%
1.2%
1.8%
0%
-2%
-1.4%
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
Est.
Fiscal Year
10
CT’s ECONOMY HAS SLOWED SINCE THE
FY 2009 BUDGET WAS ADOPTED
FY 2009
Connecticut Economic Indicators
6/25/2007
9/22/2008
Estimate
Estimate
Personal Income
4.8%
3.2%
-33.3%
Real Gross State Product
2.7%
1.3%
-51.9%
Total Employment
0.8%
-0.5%
-162.5%
Unemployment Rate
4.0%
5.9%
47.5%
16.3%
-3.7%
-122.7%
Housing Starts
Source: Moody’s Economy.com
Difference
11
CT WILL BE HIT HARDER BY A CONTRACTION
IN THE FINANCIAL SECTOR
35%
FIRE Employment, FIRE GDP, and Investment
Earnings As a Percentage of Total
U.S. vs. CT, 2007
US
29.9%
30%
CT
25%
20.8%
20%
17.7%
14.4%
15%
8.5%
10%
6.0%
5%
0%
FIRE Employment
FIRE GDP
CG D & I *
FIRE: Finance, Insurance and Real Estate
* Capital Gains, Dividends, and Interest in Income Year 2006
Source: Bureau of Economic Analysis
12
FY2009 PROBLEMS
Department of Correction Deficiency

$18.3 million rollout of FY2008 deficiency



$8.3 million of the deficiency is in the agency’s Personal
Services account due to prison population
$10.0 million of the deficiency is in Other Expenses largely
due to prisoner population levels and inflationary impacts to
direct and indirect inmate care line items
Historically under funded
DAS – Workers’ Compensation Deficiency


Estimated $1.5 million deficiency, as no adjustments were
made to compensate for the FY08 deficiency of $1.25
million
Increased medical inflation
13
OTHER AREAS OF CONCERN
FY2009 EXPENDITURES
14
OTHER AREAS OF CONCERN - FY2009

Department of Social Services

The $302 million shortfall projection for FY 2009 assumes
the enacted budget is correct, yet the Governor’s mid-term
budget adjustments anticipated that the Medicaid budget
would be short by $62 million in FY 2009



Major drivers behind the $62 million are cost and caseload
related, including HUSKY A, where caseload is expected to
grow from 296,484 in July 2007 to 344,000 by the end of FY
2009.
Costs in long-term care could escalate as DSS continues to
assess nursing homes in financial distress due to court
ordered receivership or pending bankruptcies
Costs to bring in new providers under the HUSKY managed
care re-bid are higher than originally anticipated
15
OTHER AREAS OF CONCERN - FY2009

Department of Education



Section 17 of PA 08-170, will result in $7.0 million of
unfunded costs to the Magnet School account
Special Education Funding had an FY 2008 deficiency of
$5.4 million because the grant was uncapped; a potential
FY 2009 deficiency of $6.5 million will exist assuming the
8% growth in eligible expenditures that occurred between
FY 2007 and FY 2008 reimbursements
University of Connecticut Health Center

The UCONN Board approved a FY 2009 budget for the
Health Center that forecasts an $11.5 million deficit
involving the John Dempsey Hospital, the University
Medical Group and Research programs
16
OTHER AREAS OF CONCERN - FY2009

Department of Mental Health and Addiction
Services



$13 million – rollout of deficiency related to compliance activities
at Connecticut Valley Hospital
$8 million – deficiencies related to caseload growth and other
annualized shortfalls from FY08
Department of Developmental Services



Birth to Three Program – potential shortfall of $6.3 million due to
increased caseload and a reduction in federal funding support
Workers’ Compensation – potential shortfall of $1 million
resulting from a legislative appropriation reduction of $1 million
which is unsupported by trends in the account
Voluntary Services Program – potential $5.6 million shortfall
because of higher than budgeted caseload and no annualization
of caseload growth from FY08
17
OTHER AREAS OF CONCERN - FY2009

Connecticut Energy Assistance Program (CEAP)



The energy assistance plan for low income persons proposed by the
Governor was projected to cost $84.0 million, an increase of $14.1 million
over the $69.9 million that was expended last year. Based on projected
federal funding of $42.6 million, the Governor’s plan was expected to
result in a shortfall of $41.4 million. With the release of $7.0 million in
federal emergency contingency dollars on 9/17/08, however, this
shortfall would have been reduced to $34.4 million.
The legislature increased benefits over the level proposed in the
Governor’s plan, resulting in an expected additional cost of $29.9
million. The revised allocation plan, totaling $113.9 million, was
expected to result in a shortfall of $71.3 million. With the recent release
of $7.0 million in federal emergency contingency funding, however, this
shortfall is now estimated at $64.3 million.
Assuming that the full $35 million in state energy contingency funds
appropriated to OPM under PA 08-2, August Special Session, is utilized
toward the shortfall in the revised CEAP allocation plan, the plan is still
projected to have a shortfall of $29.3 million.
18
OTHER AREAS OF CONCERN - FY2009

Department of Public Safety

Potential $5 million shortfall in Other Expenses due to:

Higher FY08 Actual Expenditures than FY09 Available
Appropriation

Energy expenses, and Fuel Costs for Police Vehicles

IT Support and IT Contract Costs

Helicopter Maintenance
19
OTHER AREAS OF CONCERN - FY2009

Spending Cap



Deficiencies must be met with transfers
Even without further deterioration of revenue, the $302
million estimated deficit could exceed $402 million if
entitlement spending areas of concern grow beyond
budgeted amounts
Further revenue decline could add to problems
20
OTHER AREAS OF CONCERN - FY2009
Special Transportation Fund
History of Growth in
Motor Fuels Tax Collection
5.2
Percentage Growth

4.17%
4.2
3.2

2.62%
2.2
1.34%
1.2

0.91%
-3.70%
0.2
-0.8
-0.63%
-1.8
-0.54%
-2.8
-3.8
2002
2003
2004
2005
Fiscal Year
2006
2007
2008

The dramatic increase in
gasoline prices is changing
consumer behavior
The fall off in Motor Fuels
Tax collections and motor
vehicle related receipts is
resulting in significant outyear imbalances in the fund
FY 2009 has an estimated
operating deficit of $42.7
million which does not
include a potential DOT
shortfall of $6.8 million in
Other Expenses for items
such as utility costs, fuel,
and steel
By FY 2012 the fund is
projected to be in deficit by
approximately $215 million
21
STEPS TAKEN TO DATE
22
STEPS TAKEN TO DATE

Actions taken by Governor Rell to mitigate the FY 2009 deficit





Issued orders to implement the following:

Hiring Freeze

Out of State Travel Ban

Limited Purchases to Items/Services Critical to agency mission
Implemented a Rescission Plan which globally reduces allotments
by $137.6 million; $26.9 million or 19% is in Personal Services
line items
Planned PS savings that do not require layoffs, instead relying
upon attrition to achieve savings
Planned OE savings that do not target those agencies facing
current service level deficiencies
Planned other savings in a manner that does not reduce payments
to private providers serving vulnerable clients
23
STEPS TAKEN TO DATE
Limits on Governor's Rescission Authority – FY2009 General Fund
General Fund FY 2009 Expenditures
(In Millions)
FY'09 Appropriation
CF from prior years
$
Total Available
$
17,073.0
504.1
D. Major "Entitlement" Programs:
17,577.1
TANF
CONNPACE
SAGA-- DSS
SAGA -- DMHAS
AABD
Child Care-TANF/ccdbg
Conn. Home Care Program
HUSKY B Program
DSH - Medical Emergency Assistance
DSH - Urban Hospitals
A. Not subject to Rescissions
Municipal Aid
Teachers Pensions
State Auditors
Ethics, Elections, FOI
$
(2,883.3)
(539.3)
(12.2)
(6.3)
$
(1,543.9)
(1,781.9)
B. Rescissions only if $ not needed:
Debt Service
Pensions, Health insurance, etc.
Medicaid
$
(3,819.1)
(115.9)
(56.5)
(186.7)
(81.2)
(92.7)
(93.1)
(63.1)
(54.0)
(53.7)
(31.6)
Sub-total (A - D):
$ (13,085.8)
Remaining GF subject to rescission
$
4,491.4
5% of amount subject to rescission
$
224.6
C. Agencies with restrictions:
DCF
DOC
UCHC
$
(900.2)
(669.2)
(102.0)
24
STEPS TAKEN TO DATE
Governor's Rescission Authority – FY2009
Amount
Remaining GF subject to rescission:
Available
Legislative
$
68.5
Judicial
485.5
Higher Ed
617.1
OPM
87.2
DDS
974.1
DMHAS
609.3
DPH
88.7
DSS
441.9
DPS
170.0
RSA
92.8
All Other
856.3
Total $ 4,491.4
Other Rescissions taken:
Debt Service
Fringe Benefits
DCF
All Other
Total All Funds
$
$
3%
cut
2.1
14.6
18.5
2.6
29.2
18.3
2.7
13.3
5.1
2.8
25.7
134.7
$
$
5%
cut
3.4
24.3
30.9
4.4
48.7
30.5
4.4
22.1
8.5
4.6
42.8
224.6
July
Rescission
$
3.3
11.1
16.3
3.3
5.2
1.3
1.5
6.9
1.9
21.3
$
72.1
$
$
15.0
34.5
5.4
10.6
137.6
25
ADDITIONAL STEPS TO BE TAKEN IN
FY2009

Prepare Next Round of Rescissions within Governor’s
Existing Authority

Request Compliance with 5% Reductions from Statutorily
Exempt Agencies

Work with Agencies on the Watch List to Reduce Expenses
and Identify Offsets within Existing Appropriations

Develop an Overall Deficit Reduction Plan
26
FY2010 & FY2011
BIENNIAL BUDGET
Problems in Addition to Rollout of FY2009 Deficit
27
STRUCTURAL HOLES - FY2010
CREATED BY FUNDING EXPENDITURES WITH PRIOR YEAR SURPLUSES
Structural Holes in the Fiscal 2010 Budget – General Fund
(In Millions)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
From the FY 2007 Surplus
Teachers' Retirement Contributions
Payment in Lieu of Taxes- State Property
Payment in Lieu of Taxes- Private Property
Debt Service- Supportive Housing
DOT- Town Aid Road
DOT- Enhanced Transit
DOT- Section 16 Projects
Comptroller- Health Coverage up to age 26
Revenue Transferred from FY 2008 to FY 2009
Revenue Transfer- Used to Balance FY 2009
From the Tobacco and Health Trust Fund
1. DSS-Charter Oak Health Plan
Other
1. Criminal Justice Reform PA08-1
2. PA08-176, Mortgage Assistance, ongoing
costs for Judicial and Debt Service
3. Persistent Violent Offenders PA08-51
Total
Amount
$ 210.0
7.0
7.0
3.0
8.0
5.0
2.3
8.0
16.0
80.0
25.5
17.1
4.5
18.4
$ 411.8

Approximately $393.4 M of projected FY 2010 spending will be funded with surplus dollars in FY 2009

These spending commitments, without ongoing revenue sources to pay for them, are contributing to our
large projected FY 2010 imbalance
28
OTHER FY2010 & FY2011
BIENNIAL BUDGET ISSUES

Raise the Age/Juvenile Jurisdiction

Rollout of FY09 Medicaid Underfunding

Pension Issues – Revaluation, POB Requirements

UConn Health Center



Health Care Worker Contracts expiration – Nursing Homes –
Spring 2009
Private Provider Increases
Special Transportation Fund

Construction Cost Escalation

Unknown Federal Commitments
29
OTHER FY2010 & FY2011
BIENNIAL BUDGET ISSUES


Energy

State Agency Costs

Recent Legislation and Block Grant action
Department of Education
Implementation of “Sheff v. O’Neill” incentive programs

Sunset of biennial caps on major education grants, like Adult
Education and Transportation
30
GENERAL FUND

According to the Office of Fiscal Analysis, preliminary General Fund
estimates indicate large current services budget gaps when compared to
current projections of revenue in the out-years
$0
In Millions
-$200
-$400
-$600
-$800
($726.6)
($830.9)
-$1,000
-$1,200
($1,040.4)
2010 Proj.
2011 Proj.
2012 Proj.
Fiscal Year
These projections are built on OFA’s assumption of a ($23.6) million deficit for FY2009
Source: OFA- Connecticut State Budget 2007-2009 Revisions, August 2008
31
GENERAL FUND
Deficits will reach $1.2 billion in FY2010 and $1.5 billion in FY2011
if spending trends continue unchecked
$0
-$200
1
2
-$400
In Millions
-$600
-$800
-$1,000
-$1,200
-$1,400
($1,218.0)
($1,524.0)
-$1,600
-$1,800
2010 Proj.
2011 Proj.
Fiscal Year
Assumes:

No further deterioration on revenue side

Additional $1 billion in spending in FY10 and FY11
32
BUDGET RESERVE FUND
10% of FY 2009 General Fund Expenditures-$1,708.3 million
$1,700
$1,381.7
Deposits/(Withdrawals)
$1,400
Account Balance
$1,381.7
$1,112.5
Millions
$1,100
$800
$666.0
$594.7
$500
$200
$30.7
$0.0
$0.0
$302.2
$363.9
$446.5
$269.2
$0.0
'07
'08
-$100
-$400
-$700
-$594.7
'01
'02
'03
'04
'05
'06
Fiscal Year




Budget Reserve Fund was fully funded at the then 5% statutory level prior to the 2000 recession
Fund balance was insufficient to carry the State through the recession even at 5% of General Fund
appropriations
Wiped-out the entire Fund balance overnight
Borrowed $319 million, raised taxes, and cut spending in order to balance the budget
33
WHERE DO WE GO
FROM HERE ?
34
WHERE DO WE GO FROM HERE - FY2009

More Rescissions and cost saving measures like the hiring
freeze have become necessary due to:

September revenue data

Continuing deterioration of economic conditions


Significant declines in the State’s projected collection of
revenues
Built in problems with the adopted budget resulting from
year-old estimates
35
WHERE DO WE GO FROM HERE
FY2010 & FY2011



Balanced Budget a Constitutional Requirement for the Biennial
Budget
Realistic and Meaningful Reduction Options Are Needed
 Overtime
 Part-time, temporary positions
 Consultant contracts
 Travel
 Lower priority programs - those not central to agency mission
 Delay start-up of new/expanded programs
Limited new Expansion Options
 Best chance is to reallocate funding within agency
36